Dear HR, 

I’ve been saving up for a home for my family to buy in the future. We were planning on saving for quite a while. However, when interest rates rose I completely panicked and withdrew all of my savings from my Merck 401(k) to use as a down payment. It happened so fast I wasn’t even thinking about taxes or the penalties for withdrawing early. I don’t know what to do or if I can even afford all of this. I’m scared for my future. I feel like it’s too late for my family to be financially stable enough for me to ever retire and I’m really regretting my decision. Is it too late to build back my retirement savings?

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When interest rates rise, so do stress levels. It’s easy to panic when finances are involved. It happens to the best of us. A decision you once considered impulsive is now seemingly rational and you suddenly find yourself withdrawing money from your Merck 401(k) earlier than you ever planned. You figure with interest rates rising, buying a home is now or never. Soon after you make this decision you start to think about the taxes and penalties. Was it really worth it? Do you regret it yet? Most importantly, what do you do now?

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For any Merck employees who are going through this, it’s important that you do not panic. Try to clear your mind.  No important decisions should be made based on emotions, especially decisions that involve money.

So, You Withdrew from your 401(k)... Now What?

When it comes to financial decisions, there’s almost always some level of risk involved. It can be hard to decide which route is best for you financially. You could take out a loan and pay interest fees, you could pull money from your retirement account, or you could do nothing at all, and feel as if you’re missing out on buying a home. So, what do you do?

Because of your withdrawal, you will have to pay taxes and a penalty. While we recognize this is never an ideal situation and is very stressful for most people, it will be okay. It’s time to focus on saving whatever money you can, and getting financially situated and prepared to retire from Merck when the time comes.

What Do You Owe?

First things first, you need to figure a few things out. 

• How much will you be paying in taxes and penalties?

• Can you pay it or do you need to ask for an extension from the IRS?

• Did this push you into a higher tax bracket?

• How are you going to go about getting this information?

We recommend Merck employees use a calculator or speak with a financial advisor to come up with a plan of action. It’s important to do this first because there are penalties if you fail to file for your taxes or if you fail to pay them. There’s no guarantee that the IRS can waive the penalties, but it could be worth speaking with one of their agents and explaining your situation. Even if they can’t waive the penalty, they may have some other options for you.

Take a Closer Look…

Now that that’s taken care of, you need to take a closer look at your money. Closing on a house isn’t cheap, and there are a lot of extra expenses you need to be prepared for. A person’s financial situation is as unique as the individual themselves. There are different expenses you may have to take into consideration that are specific to you and your family, like how much you spend on groceries or any miscellaneous costs. You should figure out all of your household expenses for at least a year’s worth of time. Here are some general expenses you should start to think about: 

• How much will you need for insurance?

• How much will you need for taxes?

• How much is your mortgage?

• How much will you need to spend to furnish the house?

When you’ve calculated how much money you’ll be spending this year, see if it adds up to your income now and adjust your spending where you need in order to live comfortably. Try some free activities instead of spending money out. It’s time to prioritize building your Merck retirement savings back up.

Weigh Your Options

If you haven’t already, we recommend you learn about the rules for your retirement plans and the different perks that come with them.

IRA:

• An investor can take $10,000 out of the account penalty-free for a first-time home purchase

• Penalty-free withdrawals for college

Traditional IRA: You have to pay taxes on the withdrawal

Roth IRA:  You won’t be taxed for withdrawing your contributions because you have already paid the taxes

401(k):

• Higher contribution limit

• Potential matches from Merck

Eyes on the Prize

Now, you know what you owe in taxes &  penalties,  developed a plan of action, you’ve taken a closer look at how you spend your money and what changes need to be made, you’ve looked into the perks of different accounts… What's next? 

Now it’s time to really focus on living according to your new budget, and saving for your eventual retirement from Merck. You should prioritize this above saving for anything else. No one else is saving for your retirement, other than yourself. So, remember to pay off what you owe, save what you can, and you can still set yourself up for a comfortable life in retirement.